Fiscal Consolidation and the Implications of Social Spending for Long-term Fiscal Sustainability

This paper sheds light on the scale of fiscal consolidation that will be needed to ensure long-term sustainability and on the potential benefits of institutional reforms in mitigating budget pressures of social spending. Based on alternative scenarios, results suggest that, in several OECD countries, the fiscal challenges are exacerbated in the long term by spending pressures related to health and pensions. This paper shows how institutional reforms may support long-term fiscal sustainability and, at the same time, reduce adverse short-term effects of fiscal consolidation on growth.